MADRID, Oct 23 (Reuters) - Spanish insurers Mapfre and Santa Lucia are mulling a merger of their funeral services businesses, hoping to take advantage of growing demand and stable cash-flows to create the Spanish market leader, three sources with knowledge of the deal said.

Santa Lucia’s Albia and Mapfre’s Funespana are Spain’s second and third-biggest funeral services companies. The biggest is Memora, which was bought by Ontario Teachers’ Pension Plan (OTPP) for 450 million euros ($516.5 million) in 2017.

If the deal goes ahead, the merged business would be the biggest of its kind in the country.

Spain’s ageing population will mean deaths increase by 12.9 percent in the next 15 years, according to a recent Deloitte report. Around half of Spaniards have a specific insurance policy to save for funeral costs.

The five biggest companies in the sector have only a 34 per cent market share, according to Deloitte, leaving opportunities for mergers and acquisitions.

Merging Albia and Funespana would create a business with more than 200 million euros in revenues, according to one of the sources, who added it would be majority owned by Santa Lucia.

Spokespeople for Santa Lucía and Mapfre declined to comment.

Mapfre has launched a delisting takeover bid to buy a 4 percent of Funespana owned by minorities, valuing the company at 140 million euros. This equates to 16.6 times its earnings before interest, taxes, depreciation and amortisation (EBITDA) last year.

“It is an attractive business, with stable and recurrent cash-flows. Although the prices of the services are not regulated, funeral services companies are considered by many as infrastructure assets,” said a source that advised on the 2017 Memora deal. ($1 = 0.8712 euros) (Editing by Julien Toyer and Isla Binnie)